Posts by Carol Brooke

North Carolina’s state government took an important first step this week toward recognizing and addressing the problem of misclassification, which occurs when employers wrongly classify employees as independent contractors. On August 11, Governor Cooper signed The Employee Fair Classification Act (SB 407). The Act codifies the Employee Classification Section in the NC Industrial Commission, established by Governor McCrory via Executive Order in 2015. The section was originally created in response to series of articles in the News and Observer that highlighted the costs of worker misclassification on employee wages and benefits as well as the harm to state coffers and to competing businesses that classify their workers appropriately.

While the new law is a good first step, many more are needed to address the problem, since the work of the Employee Classification Section remains hamstrung. Three obvious ones top the list:

North Carolina does not currently recognize worker misclassification as per se illegal, and there are no penalties to deter employers from wrongly classifying employees as independent contractors. This needs to change

In other states, agencies or task forces established to combat misclassification have the power to issue stop work orders to employers violating misclassification law. North Carolina should adopt such a rule.

Additionally, there is no current legal framework in North Carolina to prohibit state or local governments from contracting with businesses that misclassify their workers.Again, we should move in this direction.

The bottom line: The new law is a good start, but only one small step. North Carolina needs more comprehensive protections for workers and businesses to deter and stop employee misclassification and state leaders should redouble their efforts in this area.

A bedrock principle of private property is that stealing is wrong. Yet the problem of employers refusing to pay their workers the wages they’ve earned—or wage theft—is pervasive and growing in North Carolina. That’s the message of Employers steal billions from workers’ paychecks each year, a report recently released by The Economic Policy Institute.

This report looks specifically at employers’ failure to pay the minimum wage to their employees at in the 10 most populous states, including North Carolina, and reveals the magnitude of the impact of wage theft on the low income workers who are least able to withstand it. While other types of wage theft are also harmful – non-payment of overtime wages and illegal deductions, for example – minimum wage violations are a direct hit to low income workers who rely on their wages to meet basic needs.

Workers in the food and drink industry suffer the highest rates of minimum wage violations, followed by agricultural workers (some of whom are not covered by minimum wage laws), leisure and hospitality, and retail workers. Unsurprisingly, women, young people, people of color, non-citizens, workers with lower levels of education, unmarried, workers, and workers without the protection of a union contract are disproportionately affected, though that is primarily because they are also more likely to be low wage workers.

EPI found that 12.3% of low wage workers in North Carolina who are covered by minimum wage laws are not receiving minimum wage—and they’re losing almost a third of the wages they are due. This is the third highest average loss among the states studied, just behind Texas and Pennsylvania.

The researchers attribute this in part to a lack of political will to enforce the law:

“The severity of minimum wage violations in North Carolina may come as less of a surprise given that the state’s elected labor commissioner during the period studied showed little interest in enforcing wage laws. An investigation by The Charlotte Observer noted that during the commissioner’s 15-year tenure, her office “sued companies for failing to pay wages only 35 times, an average of less than 2.5 times a year” (Locke 2015) [See The Reluctant Regulator].…

It is noteworthy that in all three of these states—Texas, Pennsylvania, and North Carolina—the binding minimum wage is the federal minimum wage of $7.25. The particularly large lost wages for wage theft victims in these states, despite the relatively low value of the minimum wage, raises questions about these states’ legal framework, penalty structure, and enforcement practices for combating wage theft. To the extent that these states are deferring enforcement to federal authorities, they may be placing their state’s most vulnerable workers at risk of particularly harmful labor practices.”

In another twist in the ongoing saga of the special legislative session, the first section of the General Assembly’s so-called Regulatory Reform Act (HB3) deals a blow to restaurant and other franchise owners who take actions at the direction of the franchisor (the corporate entity that grants an individual or corporation the right to run a location of its business). Following in the footsteps of states like Texas, Tennessee, and Louisiana, the proposal seeks to put liability for wage and hour, workplace injuries, and unemployment benefits squarely on the backs of franchisees, even when the illegal acts may have been committed in conformity with the policies and procedures of the franchisor. In other words, if the bill passes, a local Waffle House franchise owner, for example, could be sued for following the orders of Waffle House’s corporate headquarters, while the headquarters remains shielded from challenges in court.

The American Legislative Exchange Council (ALEC), at the apparent behest of the International Franchise Association, has been promoting similar legislation in states across the country. The impetus for these bills appears to be the 2015 decision by the National Labor Relations Board, Browning-Ferris Industries of California, Inc. d/b/a BFI Newby Recyclery, 362 NLRB No. 186 (Aug. 27, 2015), in which the Board interpreted of the definition of employer to cover the franchisor. Scrambling to avoid liability, franchisors are supporting bills that dramatically scale back their liability for a host of workplace violations for which they are responsible– simply by changing the definition of employer to exclude franchisors. Under HB3, franchisors would no longer be jointly responsible if the workers at a particular outlet were denied overtime, injured, or wrongly fired. All liability would rest on the local business owner, who might have been acting at the behest of the franchisor and will have to absorb a judgment that they may very well not be able to handle.

But why, lawmakers might argue, should a franchisor be considered an employer if all of the control over the employees rests with the franchisee? Of course, they shouldn’t – and they wouldn’t, under existing North Carolina law. The only purpose served by the franchise provision of HB3 is to let franchisors off the hook when they do exercise control over the employment relationship. And that is the height of unfairness both to the injured, underpaid, or unemployed worker, and also to the franchisee, who may be a small business owner who is simply doing what they are told.

A multi-year investigation launched after a complaint was filed by Legal Aid of North Carolina, the North Carolina Justice Center, and Legal Services of the Southern Piedmont found the North Carolina Department of Commerce failed to comply with its obligations to provide services to persons with limited English proficiency (LEP). And yesterday, the state entered an agreement with the US Department of Labor to finally begin addressing this long-standing problem.

The original complaint alleged that the Department’s Division of Employment Security (DES) and Division of Workforce Solutions (DWS) violated Title VI of the Civil Rights Act of 1964 by not offering language assistance to persons filing claims for unemployment insurance or seeking job placement or training.In addition, the complaint asserted that the Department of Commerce did not provide written translations of vital documents and failed to make telephone and online services accessible to LEP persons.

For the 430,000 North Carolinians with limited English proficiency at the time the complaint was filed in 2013, the Department’s failure to provide adequate language access caused significant difficulties for them accessing services and benefits.The complaint included affidavits from affected individuals who had to wait hours in order to receive language assistance.Some were unable to report their work search because the telephone and online services to do so are only in English.None was offered any job search or job training services.

The complaint was filed after years of attempts by the complainant organizations to reach an informal resolution with the Department, and was updated in 2015 with examples of continuing problems.The ongoing problems included: failure to identify appellants as LEP individuals needing interpretation for hearings, resulting in the need to reschedule the hearing; and sending notices of hearings and hearing decisions in English only.There were also continuing problems with weekly job search reports since the only avenues for making such reports were in English.

Under the settlement agreement reached between the U.S. Department of Labor’s Civil Rights Center and the Department of Commerce, DES and DWS must

·Assess the language needs of the LEP populations they serve and track and report encounters with LEP individuals;

·Develop and implement meaningful language access plans;

·Correct problems with translations of written materials and online services

·Identify and correct deficiencies with the provision of interpreter services

·Train all staff on their obligations to provide language access to LEP individuals

·Publicize the availability of language assistance and review claims by LEP individuals whose services were denied or delayed

Whether the agreement results in meaningful access for LEP individuals to all of the services to which they are entitled will depend upon the commitment of the Department of Commerce to timely and effective implementation.

Workers in North Carolina received some welcome news last week – the signing of a Memorandum of Understanding between the NC Industrial Commission and the U.S. Department of Labor that should make it easier for both agencies to investigate cases of employee misclassification. The term misclassification refers to workers whose employers have incorrectly treated them as independent contractors rather than employees.

Misclassified workers miss out on many of the benefits of employees, including worker’s compensation, unemployment insurance, and overtime pay. But the damage goes beyond the harm to individual workers—the state loses tax dollars because employers are not paying their share of payroll taxes, a problem that is well documented.

Surprisingly, employee misclassification is not illegal in North Carolina. While there have been efforts to address this, the General Assembly has not passed legislation that would impose penalties on employers who misclassify workers.

The good news, however, is that workers who are incorrectly treated as independent contractors now have the option to make a complaint with the Employee Classification Section of the NC Industrial Commission. The Section coordinates with other state agencies so they may undertake their own investigations into whether the employer owes unemployment taxes, should be paying overtime to its workers, has not been properly paying payroll taxes, or needs to purchase workers’ compensation insurance.

The new MOU with the U.S. Department of Labor will also ensure that evidence of misclassification is shared between the state and federal governments. It’s a good step toward the broader reform that is needed to protect workers and provide revenue to the state.